Skip to main content
6:00 am
u.s. equity futures are down by about 21 points. s&p off by 3 1/2. and as we've been talking about daily, the looming fiscal cliff is a big piece of the market story. today barack obama is officially kicking off budget negotiations. at issue is a one-two punch. we have expiring bush era tax cuts and across the board spending cuts both set to hit in january. simpson and bowles with a warning to washington about what's at stake. >> if we get over on the cliff, we don't have a deal, and the market doesn't anticipate that we're actually going to be so stupid as to go over the cliff, then i think you'll see the market really crash and i think you'll see the rating agencies downgrade our credit again, you'll see fitch and moody's join s&p. i think you'll see corporations lose confidence.
6:01 am
you'll see them slow down hiring, stop capital xebd churs, capital will go on on strike, it will be a hell of a mess. >> leaders of both parties think it would be to their advantage to go off the fiscal cliff. what a 12 straight that is, that we could win more as democrats if we let it go or we can win more as republicans. this whole game isn't about america, it's about you who do we make the demss lose and how do we make the republicans lose. people are sick of that and ashamed of it. >> we'll try to rise above all of this today. our guest hosts will be doing the same. but before we get to all of that, andrew has shall other top headlines. we have some very important news and serious news. fighting escalating sharply overnight. dozens of missiles seen exploding in gaza.
6:02 am
authorities in india have investigating claims a that walmart violated exchange rules. direct ownership by foreign firms was prohibited. walmart has denied any wrong doing. and the news comes a day after walmart reported disappointing quarterly sales. there is an original probe in mexico. and finally japan dissolved lower house for a december 16th election. the nikkei rallied more than 2% as investors bet the main opposition party will lynn the election. the party's leader has voied to put pressure to ease monetary currency. mr. kernen, welcome back. >> 25 2not even 24 hours, but is
6:03 am
a wallop. it was something. >> we have to go back years to the last time you called in sick. >> how much do i want to share? >> none. >> the one thing i can tell you, it's been 25 years since regurgitating without alcohol i would say. >> how is that possible? how did you go 25 years? >> adults really don't get sick and throw up without alcohol. >> i did over the summer. when you're a little around kids, though -- >> food poisoning maybe. >> i've done it twice in the last year. >> women, you get pregnant and you throw up every day, don't you? >> this was since then. >> women are used to throwing you. >> we are the more manly sex. >> for men -- the other thing that also combined with that, that can happen at the drop of a hat. you know, i was looking at when
6:04 am
we said down 5% since the election, because it feels a hell of a lot worse, it was down 400 points leading up. back in october, we were at 136.6,.13.7. we're done over 1,000 points from those levels. not from election day. >> but a lot of these key stocks are at these dicey little -- cramer and others have been saying you don't want to bottom things out. is it too late to sell. >> you feel like you're getting an opportunity. >> how much farther do we think it will go? >> what i do have, you wonder do you want to just sit there and watch -- you saw some of mark grant's stuff yesterday about the tanks on the border in israel and you have the fiscal cliff and you've got europe and -- >> the other thing that we're
6:05 am
watching the market and we can't own individual stocks on things, but i have been putting money in the kids' college funds. because watching the climb where you think, okay, some day it will break and then i'll put money in, and when it did finally start to break, i was like okay let's put money in the kids' college funds and feel better about that. just mutual funds . >> remember the mayans. it's december. 200 rockets be fired from -- >> so are you calling for a faber style -- >> he scared me, too. i don't want to be left with 50% of what i have now. do you? >> not at all. but maybe that's a good reason not to by in. >> there's nowhere to hide. >> all the people selling now
6:06 am
and going into treasuries. if ire worried we go over the fiscal cliff and we get our ratings downgraded again -- >> ever since the election, i keep trying to just focus right on what we're talking about and that is this high end marginal rates on the 250 and above. obama has at this point said that so much times that, i don't know, he's kind of like drawing a line in the sand there. >> oh, yeah. >> we decided yesterday that was one thing that he is at 250 and 39.6. >> i'm still not convinced it's 39.6%. i do think 250 is the line. >> i don't think we're 35% and trying to find deductions anymore. >> the house was 55% stayed republican. so they have the same claim that their constituents elected them to hold the line on this.
6:07 am
i saw comments from dave camp that this game that he keeps playing with, i've got the pen, i'm ready to sign it, it's just delaying. it's a nonstarter according to the people that stopped it the last intwo years. >> today is the first day that they'll all be meeting at the white house. and today is the first day that we don't know what's going to happen. >> the issues are so big in terms of entitlements. the fiscal cliff is one thin, but the issues are so -- the figure c fiscal abyss. $80 billion a year is what we're talking about. >> i listened to an interview with senator patty murray this morning on npr and she's ready to go over the cliff, but she sounded a little less aggressive today when she was saying we realize that it will be a blended mix of cuts to the
6:08 am
entitlements along with higher taxes for wealthy people. and the npr anchor was trying to push her to say how far do we have to go. you keep saying an equal blend, is that 50/50. she said the president will set that blend. we'd like to see at least 40% or 50%, but it's up to the president. in the summer of 2011, it was 3 to 1. 75% spending cuts, 25% high revenue. but that's where you'll really see the questions. >> all i've heard him say about entitlements is that we'll put in some kind of structural for eventual reform to slow the increases. not even to slow spending from where it is. >> that was wilbur ross' point. keep talking about spending cuts and that's a faulty lex con. lexicon. >> i'm trying to rise, but everything tells me we're sinking below.
6:09 am
>> alan simpson was pretty down beat. >> what was his number, 30%? >> that was erskine bowles. a third, a third, a third. a third that we go over, a third that we go over and stay over, and a third that we find an agreement. >> both the far extremes of both parties want to go over. that's what we've been saying. some other headlines, r event ckitt is trufmping the deal. >> finally a little bit of action. the bid is more than 23%. the portfolio includes mega red for heart care and move free for
6:10 am
skroi joints. i thought it was a bowel thing. which i had a little too much of that freedom recently. the obama administration meanwhile is giving states another month to decide what role if anything they'll play in carrying out the new health care law. states have been required to declare intentions by today, but they'll have until december 14th. republican governors have requested more time and the associated press reports that 16 states are still mulling decisions. and the "wall street journal" report it is that the office of the controller of the currency will formally serve jcht p morgan chase with actions regarding money laundering. on the cc expected to allege weakness in the antimony laundering systems.
6:11 am
andrew, i'm going to take the opposite side of you on the whole delta thing. it's so obvious to take that side to say -- >> let's get the article here. >> what if it's been proven that -- >> let help set it up. >> what if it's proven that age has very little to do -- >> here it is. delta flies new routes to profits older jets. the idea is hear one of the reasons they're making as much money as they are is because they're not buying new planes. >> the details scared me. >> about where they're buying the planes. >> from a chinese airline who doesn't want them anymore because they're not manufactured anymore. >> you can still maintain them. you still get the parts for them. you can look statistically at the possibility of a fracture in the fuselage or whatever it is
6:12 am
and there's a number that you can look at where the probability is probably zero that anything happens. they're not flying unsafe jets. >> and they don't smell like old jets because they put new airplanes inside of them. >> it's to no one's benefit to have airlines flying spanking brand new jets that keep going out of business. >> boeing shareholders are very much -- >> i know that, but we need a viable industry that doesn't keep going boom bust. jet fuel prices go up and there they are on the edge of bankruptcy again and you're consolidation -- you can't do that. if delta finds a way to start making money, then they can gradually -- >> they are maintaining them well. i don't want to say they're not. >> richard macgyver is running the airline. richard anderson. he knows everything about
6:13 am
gadgets and fixing things. >> now i saw the denzel washington movie, i'm in a tizzy about airplanes. >> with your -- where they couldn't merge because prices might go up for technology. i don't really feel like i'm paying a lot for all this digital stuff. i don't feel -- >> i did tell you about what happened on a delta flight with my family, though. we had an engine blow out in midair and had an emergency landing. and that's not to suggest that -- >> i don't feel like every time one of our airlines go up that there's a chance it will crash. you don't let me say this, but when is the last -- remember every year the media would rush to the big 200 person dead -- remember? >> i was just on a delta shuttle on wednesday or tuesday. >> when was the last major -- >> let's hope we never have to hear about another one. >> and you hear about the air traffic near misses and things
6:14 am
like that. and i pray and hope and knock on wood, but 50,000 takeoffs and landings a day. >> statistically -- >> can we go to london? >> not on an old jet. p. >> becky would like us to talk about the global markets report. kelly evans is across the pond. we won't fly to you. we'll do it by satellite. >> good morning. i'm cringing as i listen in, but i'm also cringing at some of the market action. it's pretty much red mind me. not necessarily on any fresh catalyst. just a sense that risk is generally kind of off. people on the sidelines as we head into next week, yet another eu summit. no agreement expected over greece. that's weighing on the euro dollar, down 0.3%. but what i want to show you is the dollar-yen. 81.14 is the level. i've been watching it flicker here into the green intermittently. major moves happening in japan
6:15 am
overnight. and now current prime minister noda has dissolved the lower house paving the way for fresh elections in to december. we can take a look at what's been happening with markets. the n nikkei adding better than 2% for the last couple of days. as the yen weakens, we're seeing this rally come into the nikkei, lifting stocks. why? because there's basically a view that when the ldp comes back into power, and he'll be the seventh prime minister in the last six years, but he will nevertheless his party has been calling on the bank of japan to pursue more aggressive stimulus policies. yes, even more aggressive than it's already been basically to join the unlimited qe camp along with the u.s. and in that sense raisin nation towards maybe 3%. that's the new target they're floating. in any case, even at a time when we've seen more hedge funds betting against japanese
6:16 am
corporations, here comes policy trying to sail to the rescue. a key litmus test broadly speaking as we look at other western nations wondering whether they'll go the way of japan in the future as to whether aggressive moves three decades into your period after a financial crisis can in fact turn the economy around. so some signs of optimism today. again, it comes against a broadly weaker picture overnight. the shanghai composite, 2414 is the level. if it gets closer to that 2,000 level takes did overnight, you can expect even more jitters return about global growth process pe prospects. back over to you. >> thank you, kelly. coming up, one of the best selling magazine issues of the year. also a sad commentary on our society. people's sexiest man alive. as if "people" magazine can pick one person. it's pure pr. who know what is changes hands
6:17 am
between agents and their clients and the magazine. but this week the honor was given to someone named channing tatum. >> an actor. >> that's restricting the term actor in this case. but the magazine highlighted "fifty shades of grey." one of these men, one of these men, although the president doesn't he look like he got rid of the gray? >> i like the gray. >> back to no gray. any way, one of these men will join us next.
6:18 am
6:19 am
6:20 am
we told you one of the sexiest 50 shades of gray will be joining us. the answer is our own john harwood. >> what page are you on, john? >> page 925. >> you're in with a lot of -- i don't think brad pitt has much gray. >> he has some in his beard when it grows in. >> john, did they ask you your permission some when did you know this was going to happen? >> i got a message about a week ago from an editor there asking me for a picture.
6:21 am
>> so that was it. they didn't ask permission, they were going to do it either way. >> well, i guess if i didn't give them a picture, they wouldn't have done it. >> can i ask you a personal question not about you? >> yes, you can. >> the president's gray was gone at the news conference, was it not? was that me or did you notice that the president seems like he's got the color back in his hair? >> i didn't notice that. maybe i wasn't looking closely enough. >> he looked great. >> i have to check it out. >> do you think he's using one of those products? >> i don't know. possibly. i had the.r people here when they were kidding me about you getting this, they said see if you'd let yours grow out naturally, maybe you could have been in this, too. me they're talking about. and i still -- will i swear, like david -- >> you color your hair, right? >> no, i do not. david gregory, he's in his 30s and it's white.
6:22 am
it just is the way -- when did you start going gray? it was probably in your 30s, wasn't it? >> i think i started getting gray hair like in my late 30s, yeah. >> sorry, i'm 56, i swear -- i've sworn on my life. may i be struck done right now. >> stop tempting fate. >> so you're one of those guys like reagan? >> reagan was 75. i'm ---i'm not kidding. >> reagan swore he never colored his hair. >> maybe he didn't. i don't know. it's sad to try to prove a negative. i guess i go, i get it cut here, it's all done here. and i guess they think i'm sneaking off to a salon and putting stuff in. but i don't. anyway, enough. john, we have bigger issues. >> we do. >> we have the fiscal cliff which is not as big an issue as the fiscal abyss. it seems like here we are mired down in this 39.6% hell without
6:23 am
really focusing as much as we need to on all the other myriad things like education and entitlement reform and everything else that we need as we just, i don't know, it's like you can't use that -- both sides are just trying to, i don't know, just throwing food at each other. and it's stupid. and i want them to rise above and i'm not seeing any evidence of that. >> you're not taking any heart in the conciliatory stuff that we've heard from john boehner and -- >> yeah, from boehner i am. the president has now painted himself -- painted those guys in to -- how many times has he drawn a line in the sand about that high right on 250. he's made a point and he can't possibly go back on that now, can he? >> i think he can. look, i think he's drawing a line on getting money from those people, there people making 250 and above. but he hasn't drawn a line on how he gets that money.
6:24 am
he's said at his news conference i'm skeptical that you can do enough in loopholes and exclusions to get the money that we need for a deal from that group. but he also said i'm open to new ideas. so if there is in fact an effort to close some loopholes that gets you some of the way there, you can certainly see the president, i could anyway, compromising somewhere between 35 and 39.6 on a slightly higher rate. if shall be caomebody came up w source of revenue which didn't change the distribution of the tax burden, figure out a way to do it without a top rate. i kind of expect what's going to happen is loophole closing and you end up at like 37 ors somethi or
6:25 am
something like that. i think there is a spirit of both sides wanting to reach a deal. the president is expressing that he has a little higher ground. >> i have heard people talk about the v.a.t. tax, a value added tax. i have heard people bring that idea up. i don't understand why it would even be something that democrats would consider when it really is something that is a regressive tax. a much more heavily burdened tax. >> there are ways in which you can make any tax progressive depending on what sort of rate is and that sort of thing. certainly some in the obama administration and many republicans for a long time have been interested in a v.a.t. as a way of taxing consumption rather than savings and investment and earnings. as a way -- as part of the rebalancing of the economy that the president himself supports of trying to invest -- save,
6:26 am
invest, develop our productive capacity. i don't think -- the problem with the administration has been thorough going tax reform including something like a v.a.t., including something like a carbon tax for example which would achieve some of his energy goal simply not possible. you can't do it in a short time frame. so i think there are practical questions to that. but i don't think there's a principal objection to it if you somehow combined it with the existing system that in a way that reserved the distribution of the tax burden. he doesn't want to go backward on progressivity. and i think if you can meet those tests, that's part of help saying he's open to it. they've always been skeptical that you can did all these things. spi entitlement reform, deficit reduction and tax reform in anything close to the same time frame. >> all right, john, thank you. one more thing -- becky, i'm afraid to tell you this.
6:27 am
fi phil lebeau, he knows everything about -- the last major -- >> i saw that. >> last major airline crash in the u.s. with fatalities was the one which was right after 9/11. >> horrific. >> in new york and right after 9/11. november of 2001. >> there was a 60 minutes piece on that neighborhood because that neighborhood just got swamped again. belle harbor i believe is the name. it just got swamped again with the huge flooding that came in. >> 11 years, amazing. let's hope we go more than that even. coming up, living on the cliff. s&p's warning for what happens if politicians take one wrong step. that and a lot more after the break. before you hit the road, here's your traveler's check. the national average price for a gallon of regular unleaded gas is now at $3.44 after peaking at $3.87 in mid september. that's according to aaa.
6:28 am
so which states have seen the largest decline in gas prices since then? find out next. [ male announcer ] you are a business pro. governor of getting it done. you know how to dance... with a deadline. and from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price. this is awesome. [ male announcer ] yes, it is, business pro. yes, it is. go national. go like a pro.
6:29 am
i was downstairs making coffee, and we heard it. it just came crashing through the roof, out of nowhere. what is it? it's our ira. any idea what coulda caused this? maybe. i just sorta threw a little money here, a little money there. and i loaded up on something my dentist told me was hot. yeah. ♪ can i still ship a gift in time for christmas? yeah, sure you can. great. where's your gift?
6:30 am
uh... whew. [ male announcer ] break from the holiday stress. ship fedex express by december 22nd for christmas delivery.
6:31 am
so which states have seen the largest gas price declines over the past few months? minnesota, missouri, and kansas. our top story this morning, president obama and congressional leaders will be meeting at the white house today. s&p has looked at the economy under three scenarios. there's a fiscal cliff deal, there isn't a deal, or there's a
6:32 am
tentative deal and they've figured out what it means for the economy on all these counts. s&p's deputy economist is here. and we've been talking about what happens if we go over the fiscal cliff and i guess there are different scenarios. one you stay there and the other is the bungee cord idea where you come back really quickly. my guess is the come back really quickly, it's hard to figure out what that would mean. but if we do go off the cliff and stay there, what does that mean? >> three things. we he have first sequestration go there is to effect. that's a huge hit to the economy. we have the bush tax cuts gone. we have the payroll tax gone. the long term uninsured benefits gone, as well. that kind of austerity is the largest seen in decades. and in my analysis, that would put us back into recession. >> we would go down about half a percent negative half percent? gdp? >> we're seeing a lot of
6:33 am
momentum in the economy. it does look like the economy after many years is finally taking hold, we're seeing households go into buying not just cars, but other big ticket items. it looks like the housing market is turning away. all these are positive. yet if this fiscal cliff does hit, then we could see a pull back and go into recession. >> even if the fiscal cliff doesn't hit, if there is a deal, it will include higher taxes and cuts to spending. my point is it's not going to be the same january 1 no matter what. so if we did see some sort of a deal, what do you think the economy can handle? >> i think right now there's a lot of uncertainty and right now the economy seems like it's really picking up. you see as i said households feel a little more comfortable opening up their checkbook. i think the deleveraging in that sector seems to be passing through and is in the final stage. we're seeing housing also picking up. and that has a lot of knock down effect. means people will get jobs, construction jobs, retailers will start to get more business.
6:34 am
all positive news. but if we see the kind of hit to the economy, what we're looking for is baseline a forecast of about 2.3 growth. if we go in, it's a contraction of about 3% bringing this will economy down to under -- >> i guess my point is that a deal is going to do things that will change the economy, too. if you end up with a simpson-bowles type deal that puts a limit on the mortgage tax deductions that you're allowed to tarks we' to tarks retake, realtors say tt will slow the housing market. we have to both raise revenue and cut spending. so it's 2.3% is the difference, but what if we get a deal. then what happens? >> if the deal costs through, do they start it on january 1st? >> taxes will go up. spending cuts could get pushed down. >> well, the tax cuts could also
6:35 am
be -- if nothing's done, if we just you allow the tax cuts to expire, there could be if there is some kind of grand bargain that is reached either a reduction in the tax rates but only slightly, not what obama is looking for but maybe in the middle or if we start to see tax cuts in terms of dealing with sort of what kind of reductions are allowed. >> payroll tax holiday is not going to be extended. >> most people are in agreement that that can pass. that's something that could pass. and again -- >> you're calling for us to keep spending like this, but at the same time, s&p is very worried about the fiscal future of the united states. so where is the happy medium? >> no, i'm saying that -- what we've been saying, my colleagues on the sovereign group are saying that we need a medium term plan. doesn't have to go in immediately. >> two, three years down the road? >> we need a medium term plan. >> do you think the economy would did the best if there is a
6:36 am
deal just to do nothing, let everything ride but set up a framework for a deal that kicks in down the road? >> that's what i'm expecting. i'm expecting the payroll tax holiday to be extended one more year. i'm also expecting the bush tax cuts to be extended one more year. and what i'm expecting is as of 2014 to start to see those things sunset out. i also expect -- >> even above people who make more than $250,000? >> i think that will be actually extended one more year but we could see that sunseted out, aw. i'm also looking for spending cuts, as well. you'll need both. even if we see all the the tax cuts pulled away, you're still going to be spending. and that will also be in the entitleme entitlements. >> you're noodmodeling this ut t is if nothing happens before 2014. >> i'm saying if they come to
6:37 am
some kind of agreement on dealing with these long term d debt issues, then they can -- the sequestration will not go into effect, the tax credit will continue. even if we go off as you say kind of hang off the cliff for a little while and then pull back, the treasury has a lot of room it move. we knew that last year. we knew that with the can at the time ceiling. is they could do it later in a few months. maybe not right on january 1st. the bush tax cuts can also be grandfathered back in. so there is a lot of room. my concern is the uncertainty. we're watching markets already reacting to it. we're probably already heading down the fiscal hill right now and that is causing damage to the economy even as we speak in slowing growth. but if we do come to shaome kin of compromise, businesses are sitting on a lot of cash. they'll get that road map on
6:38 am
which to run. >> okay. makes sense. beth ann, thanks very much for joining us. >> comments -- comment on this. i don't want to be in "people." i really don't. but let's say i did have gray hair. i don't want to be part of a list that would have me or a club that would let me join like you said. but i think you can see right there, harwood does not want my hair. >> you look like a politician. >> what happened to -- you know what this proves, i look better with either hair really. but just for your consideration, people, there i am with some salt and pepper. probably too late to replace me in this issue. comments, questions about anything you see here, next we'll take flight with the ceo of virgin america. andrew can ask him about old planes. fuel riprices, consumer spendin
6:39 am
and much more. it says from 10,000 feet. >> 35. what's next? he's going to apply testosterone to his underarm. axiron, the only underarm treatment for low t, can restore testosterone levels back to normal in most men. axiron is not for use in women or anyone younger than 18. axiron can transfer to others through direct contact. women, especially those who are or who may become pregnant, and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. report these signs and symptoms to your doctor if they occur. tell your doctor about all medical conditions and medications. do not use if you have prostate or breast cancer. serious side effects could include increased risk of prostate cancer; worsening prostate symptoms; decreased sperm count; ankle, feet, or body swelling; enlarged or painful breasts; problems breathing while sleeping; and blood clots in the legs. common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa.
6:40 am
see your doctor, and for a 30-day free trial, go to we create easy to use, powerful trading tools for all. look at these streaming charts! they're totally customizable and they let you visualize what might happen next. that's genius! strategies, chains, positions. we put 'em all on one screen! could we make placing a trade any easier? mmmm...could we? open an account today and get a free 13-month e ibd™ subscription when you call 1-888-280-0149 now. optionsxpress by charles schwab. try running four.ning a restaurant is hard, fortunately we've got ink. it gives us 5x the rewards on our internet, phone charges and cable, plus at office supply stores. rewards we put right back into our business.
6:41 am
this is the only thing we've ever wanted to do and ink helps us do it. make your mark with ink from chase.
6:42 am
this morning we have the ceo of virgin america. p. >> he's joining us very early this morning from the company's hometown of san francisco, california. david, thank you for joining us. i want to talk about the earnings in just a little bit, but first a lot of people look at this, you've been growing so quickly, why are you starting to tap the brakes a bit in terms of taking delivery of aircraft as well as expand manage to new
6:43 am
markets? >> i think a couple of things here. first of all, we felt the need to get to critical mass which we believe we've done. we have 50 aircraft now. and so we feel comfortable slowing down the growth. but i would say the key thing we've seen in the two years since we in addition will made the order is the increase in fuel prices and basically what is a slowly growing economy. and when you do the math, it doesn't make sense to go in and continue the rapid expansion. >> part of this tapping the brakes, if you will, is slowing down the rate and pace of taking new aircraft from airbus. some people say wait a second, those will be more fuel efficient, why wouldn't you want those sooner rather than later because you're deferring accepting some of those aircraft. >> we're in a little bit of a different situation than other airlines. we're a new airline. our average fleet age is about three he years. i think what you'll see is airbus was quite eager to take
6:44 am
the airplanes back because you have other u.s. legacy who are interested in taking them to replace 20-year-old aircraft. >> you had a third quarter in which you earned $15.8 million. you're expecting to be profitable in the fourth quarter. and in the past you've talked about the possibility of an ipo in 2013. where do things stand in that regard? >> i think we're going n. a wait and see mode as a lot of people are. again, the economy seems to be doing fine. demand seems to be fine. fuel prices are high, but stable. and i think we'll wait and see until we get into the new year how things progress. >> andrew. >> this is a question for david. it may be too early for you to have an opportunity to read the "wall street journal," but there is a front page story about delta and how they have been profitable in part because they actually fly much older jets. not just old jets, but much older jets. and i wanted to get a fwanlg from you you. is that a good thing, a bad thing, would you you feel comfortable flying a fleet of
6:45 am
much older planes? >> well, certainly from a safety perspective, i would feel very comfortable. the air dlaft are older are just as safe as the ones that are younger. i haven't seen the article. i think my paper boy is probably still in bed right now. but what i will say is this is very much richard anderson's m.o. the same strategy that he had at northwest airlines where he was just very cautious with how he allocated his capital. he would spend his capital on the long range jets that require new technology perhaps more than the shorter range jets. so what i'm seeing is he's willing to spend the money on new long range international jets and perhaps save some of his capital when it comes to the domestic fleet. >> and phil, i probably should ask david, but i think of you, phil, as an expert. the knee jerk reaction immediately is older jets, i'm worried. but it's not born out by the facts, is it, phil? >> in terms of safety? >> yeah. >> no, it is not born out.
6:46 am
and i know becky doesn't like talking about this, but we're in the longest period right now of flight safety in terms of major accidents here in the united states. knock on wood -- >> they do stress fracturing, all the engineering really detail x-ray analysis of all these things. so if you were to totally refurbish a plane, i don't know, it's a horrific piece on on the cover and i just think it's unfairly tarnishing delta for -- my point was we don't need a bunch of airlines going out of business every two years. if they find a way it to do this and then slowly rebuild the fleet, actually being profitable, then isn't it better for everybody? >> i think david hit on the point there that this is how richard anderson operated northwest in the sale manner, he's doing it that with delta. and when we were down shortly after hurricane sandy hit and we were in the delta operations center and we were talking to some of the executives at delta, we said what do you think about the new 787. and they said we'll get them
6:47 am
eventually. richard likes to have established airplanes in the fleet. that's not a knock against the 787, it just goes straight to his philosophy which is let's take these older aircraft and, yes, they may be less fuel farkt, but they can get the efficiencies. >> i never like to buy the first version of anything about that. >> if you think of it that way, you're -- we'll buy the brand new jets from china and fly those. aah! >> i want to go back to virgin america for just a second because i fly you and frankly i love you. i fly you to l.a. all the time. but you mostly focused on what are probably the most competitive routes out there. and i wonder just from a business model perspective, do you ever thing now that you should start thinking about different routes, frankly less competitive and may have a bigger margin? >> you go where the money is and there's a reason these routes are so competitive and so much capacity is because they're high yields routes and they're where the business travelers are.
6:48 am
our view has always been if we put the best product out there at competitive price, it will do just fine. and in all honesty, once we've been in the market for a couple year, that we drought pace our rivals. so it's a different business model than spirit and perhaps jetblue, but we think it will pan out pretty well. >> and one last question for you. you guys are known for the amenities that you have on board. the in-flight entertainment. but the question that everybody has with the airlines is when we look at the unbundling and charging for fees of different services, where are we in that game some do you see that we still have a long ways to go in terms of what the airlines are likely to charge us for? >> i think we're close to the end. we originally had a product that was perhaps unnaturally bundled and a lot of that came from the regulated environment we had back pre-1980 where everything was forced to be in the ticket price. so i think what we've come to is a more natural economic order in terms of cafeteria style.
6:49 am
you pick what you want. but i think the unbundling is pretty much done. you may see a few things going forward, but most of it has been done thus far. >> david, joining us very early? san francisco, guys, a day when the company says they'll tap the brakes a little bit on their growth but coming off a profitable third quarter and expecting a profitable fourth quarter. guys, back to you. >> phil, thank you. i was trying to figure out what in the world they could possibly still charge us for. >> they'll figure out a way. all the airlines will. >> wearing clothes? >> paying nor travel with a bunch of naked people. >> can i pay to make sure all the other peenassengers are clo? >> i've never flown virgin. >> i love it. >> you wake up a newborn again -- >> born again every single morning. when we come back, a world of opportunity, why u.s. consumers could soon benefit from an improved pan thama can t will. in 1894,
6:50 am
they've been committed to putting clients first. helping generations through tough times. good times. never taking a bailout. there when you need them. helping millions of americans over the centuries. the strength of a global financial leader. the heart of a one-to-one relationship. together for your future. ♪ ♪
6:51 am
♪ ♪ [ male announcer ] some day, your life will flash before your eyes. ♪ make it worth watching. ♪ the new 2013 lexus ls. an entirely new pursuit. who have used androgel 1%, there's big news. presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites.
6:52 am
discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or, signs in a woman which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. men with breast cancer or who have or might have prostate cancer, and women who are, or may become pregnant or are breast feeding should not use androgel. serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet, or body, enlarged or painful breasts, problems breathing during sleep, and blood clots in the legs. tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. talk to your doctor today about androgel 1.62% so you can use less gel. log on now to and you could pay as little as ten dollars a month for androgel 1.62%. what are you waiting for? this is big news.
6:53 am
welcome back to "squawk box." the expansion of the panama canal will be completed by 2014. joining us is peter evensen, ceo of teekay corporation and robert bugbee, president and ceo of corporate tankers. we were having a conversation, we were talking about planes and fuel and efficiency and things
6:54 am
like that, these ships have gotten a lot more efficient. >> absolutely. when you think about a ship, they used to be designed in order to have the cheapest construction costs and the biggest freight capacity but since fuel prices have gone up about 500% since 1999, now we're starting to look at much more fuel efficient designs. >> how much do one of these tankers cost? >> they vary and the product tankers we have cost in the mid $30 million to $35 million apiece. >> for ours they're about $50 million. >> why? >> teekay shipping and scorpio. >> we announced who they were. did we not do that in. >> you did. >> okay, good. >> am i missing something? >> no, i was, maybe i missed it. i think i did. maybe i'm still under the weather. >> i apologize. so you were not sick yesterday. wasn't that a ferris buehler
6:55 am
thing? joke, joke, not funny. it's not working. back to the shipping issue. on the panama canal, how is it going to change the business in terms of percentage, in terms of shipping, more shipping? >> for us, i don't think the panama canal expansion is the subject that really matters at the moment. for us what matters in conjunction with fuel-efficient ships, which are 30% more efficient whilst they're at sea is the tremendous expansion of trade and the explosion on the demand side that's happening at the moment as a result of three things, the expansion of refining capacity in india, the refining capacity in the middle east and the transformation that finally the united states is net exporter of products. >> there's a huge story in wall street, a column john bussy writes, the people who are big users of natural gas have been e-mailing him saying we need to
6:56 am
keep this in the united states and natural gas producers want to do expansion. where do you think become out in that debate? >> i think a big part of that is the panama canal. we're building lng ships perfectly sized to go through the panama canal. that will save a lot of money. the reality is gas drilling is going down because it isn't profitable now. you actually need exports in order to keep the price high enough so you'll create jobs and you'll actually have enough gas for the dows of the world. >> although you could see if there was a lot of stuff that's used down the road how that debate could change if prices actually rose. >> there's a lot of gas in the world. it's a question of price, the higher the price the more gas. >> there's a lot of gas and a whole change from natural gas, liquid petroleum gas to chemicals to products is tremendously beneficial just to let it ride and there is a lot of gas. having you ship my gifts couldn't be easier.
6:57 am
6:58 am
well, having a ton of locations doesn't hurt. and my daughter loves the santa. oh, ah sir. that is a customer. let's not tell mom. [ male announcer ] break from the holiday stress. fedex office.
6:59 am
7:00 am
it's a fiscal cliff face-off. >> this whole game is about win or lose. it's not about america. people are sick of that and they're ashamed of it and they're disgusted. >> "squawk's" campaign to rise above, taking the nation by storm. former assistant treasury secretary tony fratto, former top white house economic adviser austan goolsbee tells us where to find solutions. what traders are seeing on the floor before the day's first transactions. and disrupting the status quo. >> are you suggesting it makes you smarter? >> i'm not legally allowed to make such claims. >> a 16-year-old entrepreneur is here to explain as the second hour of "squawk box" begins right now.
7:01 am
♪ >> good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. we've been watching the future, dow futures up by about 4.5 points, s&p futures up frox fractionally, the nasdaq futures down fractionally. the russell 2000 is down about 7% since the election. to your morning headlines it's more than just the fiscal cliff impacting stock prices. dell's quarterly profits dropped in the latest quarter and improvement does not appear to be around the corner. it's one cent below what the street was expecting. dell says a challenging macro economic environment is continuing into the current quarter.
7:02 am
schiff nutrition is the subject of a bidding war between two players, it had previously agreed to be bought by bayer. hostess is expected to announce if it's going to go ahead with plans to liquidate, this is something it's been threatening to do if striking workers didn't return. hostess is operating under bankruptcy protection and we've been watching that closely. on a global report, there are reports out of israel, two hamas rockets have hit southern tel aviv, landed in an open field and reports say they did not cause any damage but this comes after a night of air strikes by israel against hamas in the gaza strip and we are watching that situation closely as well. joe? >> cnbc is making the push to rise above and yesterday former wyoming senator, alan simpson and the simpson of
7:03 am
simpson-bowles spoke to cnbc and pretty much laid out our campaign. >> the leaders of both parties who think it would be to their advantage to go off the fiscal cliff. what a wonderful trait that is, that we could win more as democrats if we let it or we could win more about republicans. this whole game is about win or lose, not about americas. it's how do we make the dems lose and how do we make the republicans look. people are sick of that, ashamed of that and disgusted. >> talk fiscal cliff, the future of american business and more, austan goolsbee, economics professor at the university of chicago school of business and a former council of economic advisers i chairman under president obama and tony fratto, managing director from hamilton placed strategies and former assistant treasury secretary and cnbc contributor. there are elements of both sides that are okay with going over the fiscal cliff, which is
7:04 am
frightening. >> yes. >> what do you put the probability at right now? >> i'm higher than mo. conventional wisdom, 50/150. >> i've been in the 50/50 range for a long time. >> i'm going to say 60/40. >> as each day goes by i'm closer. >> whatever you say i'm five above that. i think it would be bad. >> you can't go over, you want to stay below. >> is it a bungy jump thing where we go over and bounce bang or we go over and stay? >> i think it's a long bungy. once we go over i think it will take some time. what both sides need to do, alan simpson, first of all, no one has more courage than former members of congress. they're for everything once you're a former member of congress, you can do just about anything, but i think that it's
7:05 am
going to take time to test positions on both sides. you can't just expect both sides to capitulate on their positions and just like cave, right? that's not the way negotiations work. >> okay, i'm going to get to new a second. >> oh, no. >> hold on one second. >> it's just crossing pr newswire, hostess brands is winding down operations and has filed a motion with the u.s. bankruptcy court to close business and sell its assets. i had more faith they would find compromise than a fiscal cliff. >> if you can't make money selling twinkies to americans you almost deserve to go out of business. >> the fruit pies. >> ho-ho's. >> cherry fruit pie. >> someone will keep making twinkies. >> it's a pennsylvania company. >> irving, texas. >> halloween the people on our street gave every kid an entire hostess fruit pie. that was the greatest halloween
7:06 am
ever. i still remember that. >> even the big bars -- this is the way you wear a sweater, with the jacket. >> with the jacket. so i can do that or you don't want me to do that. >> if it's cold or what? >> here's my question. i'll cut to the chase, i understand that, did both sides start out in a position where they have some room to compromise in, but to me, am i wrong that the president, with letting it expire on 250 and above he said that so many times it looks like more than posturing to me. looks like this time he's promising his base he won't go back and that makes it very difficult since the house is the same house that's been there for the past two years. >> that's why i think he almost needs to go over the cliff also. if we go over the cliff, just think about tax revenues. >> then they're back. that's the one way to get it back. >> he has made a promise not to raise taxes on 250 and below. that will happen if we go over the cliff. republicans have made a promise that they don't want to see
7:07 am
marginal tax rates rise. that's going to happen if we go over the cliff. so both positions will have been lost once we go over the cliff. >> then you can start over? >> and think about smarter solutions and negotiate on the numbers a little bit more. >> i'm actually pretty optimistic that in 2013 we go do what the real thing here is, what is the grand bargain going to look like, can we do it? i'm actually somewhat optimistic they'll be able to sort it out. i think there's a lot of common ground, you're seeing some flexibility coming from the republican leadership on the revenue. they almost had a deal last summer. >> are we seeing any flexibility on entitlement reform from the left? >> you mean other than when they offered significant entitlement and discretionary cuts? >> a structure for slowing the growth in spending. >> remember the president definitely learned a couple of lessons the way things played out last time, which he's very
7:08 am
unlikely to repeat because they were horrible both for the economy and for the way things played out. one was at the end of 2010, we had a very similar discussion about extending the bush tax rates, and one group said oh, let's extend them all, the economy is weak. why can't we show the country we can do something together and extend the tax cuts. they come down, make a deal, they extend the tax cuts. that put all of the then negotiating weight onto the debt ceiling and so all rational people were thinking they made a deal on taxes, this is great. the economy is not going to be hurt. nobody would threaten default of the u.s. government, right? well, turns out somebody would, and then once you've just signed the extension there's nothing to negotiate about. there's not anything the president has that he can say i'll give you this if you sign this, and so i would be
7:09 am
extraordinarily surprised if the president is willing to go along with some extension that does not move the debt ceiling and get that off the table, because otherwise we just go back to a thing where nobody has any bargaining leverage and they take the hostages. >> you don't feel if we go over the cliff january 1st -- some people say there's two or three weeks that actually there's less of an impetus? >> i think there would be a huge impetus then. that's basically in, it's not the conventional wisdom but that's the way i see it playing out is they stumble there back and forth, there's a veto, and both sides are threatening, they go off the cliff and then in january, ordinary americans wake up and go, you just raised my taxes $4,000, what are you people doing there? at that point they scurry to get back in the room and they sort it out. >> you just have the elements in the room to negotiate at that point because it has taken place and now you're negotiating from
7:10 am
not prospective. >> you're talking about cutting taxes, not raising taxes. >> that's part of it but you get a chance to be smarter. the cap and deductions idea wherever it ends, i don't know what the right number is but it's a great tax reform. that is an important really good tax reform issue that we should get done. they should be capped in some way. you shouldn't go oh, the huge benefits go to the wealthy. >> it's a band-aid fix for the idea we need overhaul of the tax system completely. >> if you really want to get at a lot of the money that's not taxed right now and broaden the base that wealthy people have you don't do it going up 3.9% on the high rate because they don't pay themselves income. >> we can talk you guys in -- it's better. you can soak the rich better by getting rid of deductions.
7:11 am
>> to broaden the base and lower the rate, i'm totally fine. we have to generate revenue. >> they got to get back to 39.6. >> before we all hold hands and say we've sorted it out, all we need to do is limit deductions, realize the major players involved in taking the pain of those deductions, we haven't even heard from them yet, so housing, mortgage interest we will, the charities we will. >> they're loud and organized. >> so even capital gains. >> we should be looking at this but get ready because it's going to be louder than you think. >> you were represented the right a little bit. do we need to worry about hurting capital formation if we think we could do whatever we want with capital gains? we do want capital investment. >> it's a long-term negative. it's not the tax code any of us would want. >> 28% for difficult depvidendsl
7:12 am
gains. >> 1986 that was the deal that was cut, it was taxed at ordinary income. >> everybody has their biases on the tax system. there are different ways -- i'd love to tax on consumption, i'd love to see a vat, i'm a big vat guy, not with income, but i could think about a mix that really makes sense, but my bias is on protecting capital. i want to see capital investment. i don't want to penalize capital investment. i want to see more of it. i think it's great for the economy. >> there are other people -- >> is there are different views on it and i could find places to negotiate on it. >> we had one of our later shows said "i've never made a single decision based on taxes" and mark cuban tweets -- shall >> in the aggregate there sis a cost. >> i disagree on the capital gains issue because if cutting
7:13 am
capital gains taxes and lowering the interest rate were the magic beans to get the bean stalk growing we'd be up in the clouds. we cut the long run capital gains rate for high income people among the lowest it has ever been. >> we could always have that argument, we live in counter factual arguments. >> we have to go but we will get back to the second lesson that the president learned. you talked about one, i want to know what the second one is. >> a nice little tease. >> give him a break to come up with him. >> shoot us an e-mail and follow us on twitter, @squawkcnbc is the handle. futures a mixed picture, dow would open up five points higher and the s&p and nasdaq marginally off. coming up next a high yield fund manager, why he thinks junk bonds are the way to go if we do go over the fiscal cliff. "squawk box" is coming back with that and a lot more.
7:14 am
"squawk box" is rising above partisan politics. we're asking business leaders -- >> don't take the pin away, joe, please, do anything but don't tick ta the pin. >>er with' all for rising above. >> and you. >> if you don't rise above, you know what you do? >> sink below? >> you sink below. >> to join us in calling on washington to solve the crisis that could send our economy into a tailspin, head to and get your exclusive rise above pin, and show washington that you want something done to keep america great. "squawk box" on cnbc, rise above, and profit from it.
7:15 am
7:16 am
7:17 am
all right, we told you this briefly just a moment ago but twinkies maker hostess brand says a workers strike has crippled its operations to the point it is moving to shut down. this is the bankrupt baker, says operations have been suspended at all plants and it will lay off its 18,500 workers and focus on selling its assets. the company says it simply does not have the financial resources to survive the national strike. they set yesterday at 5:00 p.m. as the deadline for enough
7:18 am
workers to be operating the plants. talking this morning, this is hostess cupcakes, suzy q's, ding dongs, snowballs. >> this proves we could go over the fiscal cliff. if you let hostess liquidate, anything can happen. >> a bailout? >> this is as american as apple pie. >> you want ring dings and ho-ho's can fall by the wayside. >> no. if you simply have an auction and you say these are the last twinkies that will ever be made, how much do you want to pay for them, they're coming right out of chapter 11. >> you're saying we shouldn't have bailed out the auto. i'm arguing we should. now we're on the opposite side.
7:19 am
we'll survive. >> it depends how many people like twinkies versus automobiles. >> given the shelf life of a twinkie -- >> i didn't believe my son will never have a twinkie. >> it's a durable good. >> it should be considered a durable good. twinkies are like spam. >> they're like delta jets, some stores sell 20 years old twinkies and they're just as good, work just as well. we'll get to the next segment, next guest has some ideas on how to make some money for his clients in the u.s. as we near the fiscal cliff. we need a bailout for that every time we need a bell for that every time we hear the phrase. kevin, thank you for coming in this morning. we've been talking about what's going to happen in the next month or two in the market. my take or your take is that we should be buying high yield bonds, that he's the way to play
7:20 am
this. >> we think high yield represents reasonable value. high yields had a great run in the last few years, prices appreciated a lot. at this point, the average high yield bond is above par trading at 102% or 103% of par so i would tell you investors should know high yield not to for price appreciation. they should own it for the yield. yields are about 6.5%, and in a market context we still think that's attractive looking at the spreads of high yield they're about 600%. >> what's the past month been long and what do you expect the next two months to look like assuming we go over the cliff and do the long bungy cord operation? >> historically the high yield market is known to have short term volatility. in the last few weeks, in the last week they've gone down about a half a point. one of the reasons why we think high yield is fairly valued is
7:21 am
we think of high yield as kind of a middle ground between higher quality bonds on the one side and equities on the other, and more optimistic scenarios we don't go over the cliff, equities will outperform high yield, high yield will outperform high quality bonds. we go over the bonds, high yield will underperform higher quality bonds. >> we're literally talking about a three or four-month period. are you talking over the next 12 months, talking about the next two years or literally if you're in the market today? >> we're investing for the long termg and we're looking for investors who are making that strategic allocation but over the short term, if the markets sell off we think shy yield will perform better than equities. we think there's a lot of opportunities in the market. we have a very broad, deep team
7:22 am
in analyzing the entire marketplace. >> you want to pop off a name or two? >> sure, one name would be lyondell basell, they have free cash flow, the most recent quarter about $1.25 billion of free cash flow. you look at their financial health debt-to-cash flow, we compare that to the triple e rated dow, the dow trades at 3%, lyondell trades at 4%. that's a good risk adjusted return. >> good argument. thank you for being here this morning. >> thank you very much. >> that prosects the professor's retirement, you do a very good job. >> an important job. >> i'm looking at the hostess, there's just no way. >> what? >> no way someone doesn't buy this. >> somebody was saying tasty cupcakes. >> these are great assets,
7:23 am
iconic. tension in the middle east and fiscal cliff, find out what is catching the attention of traders as we head into the weekend. time for today's aflac trivia question. what beloved "cheers" character was played by actor john ratzenberger? the answer when cnbc's "squawk box" continues. aflac! ha! isn't major medical enough? huh! no! who's gonna help cover the holes in their plans? aflac! quack! like medical bills they don't pay for? aflac! or help pay the mortgage? quack! or child care? quack! aflaaac! and everyday expenses? huh?! blurlbrlblrlbr!!! [ thlurp! ] aflac! [ male announcer ] help your family stay afloat at plegh!
7:24 am
7:25 am
well, having a ton of locations doesn't hurt. and my daughter loves the santa. oh, ah sir. that is a customer. let's not tell mom. [ male announcer ] break from the holiday stress. fedex office. is what drives us to broadcast the world's biggest events in 3d, or live to your seat high above the atlantic ocean. it's what drives us to create eco-friendly race tracks, batteries that power tomorrow's cars, nearly indestructible laptops, and the sustainable smart towns of the future. at panasonic, we're driven to make what matters most better. just another way we're engineering a better world for you.
7:26 am
♪ now the answer to today's aflac trivia question. what beloved "cheers" character was played by actor john ratzenberger? the answer, cliff clavin. >> aflac. >> welcome back, everybody. here are some retail stocks you may want to keep an eye on this morning, sears posting a loss of $1.99 a share on revenue of $8.86 billion. shares tumbling in afterhours trading. sears is the best performer year-to-date on the nasdaq index. gap matched expectations. revenue came in at $3.86 billion and that beat forecasts. the company raised full year earnings guidance and the stock
7:27 am
rallied. nike a 2 for 1 split. the board included a dividend increase of 21 cents a share and we have drink twinkies on the s. >> we have a lot of twinkies on the set. if you have questions on the twinkies, the drakes, yodels. we have to go. shoot us an e-mail, or tweet u us @squawkcnbc is the handle. coming up a trading block and a 16-year-old entrepreneur who is pretty cool. we'll meet him after the break as well.
7:28 am
when you take a closer look... the best schools in the world... see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... they can inspire our students. let's solve this.
7:29 am
7:30 am
welcome back to "squawk box." in the headline this is morning, president obama meets with congressional leader this is morning as democrats and republicans try to solve the fiscal cliff issue. the two sides still appear to be far apart as they try to come to an agreement by year's end and that's the conversation we've been having around this table today. fedex and u.p.s. saying they are
7:31 am
targets of federal investigations into shipments by online pharmacies. the government has shut down thousands of websites over the past seven years in an effort to crack down on illegal prescription drug shipments. google and dish networks talking about starting up a new wireless service according to the "wall street journal" which says talks aren't in the advanced stage. dish wants to partner with another company to build out a wireless network. becky? >> we've been talking about the rising tensions in the middle east and wondering if that will set oil prices higher? matt smith is an economist analyst for schneider electric and also from the cme, scott shellady. matt, a little surprising oil prices are weaker given all those concerns about what's happening in the middle east. what is happening? >> sure, well we've had this barrage of bearish data from japanese gdp to the eurozone
7:32 am
falling into recessionary conditions and yet all the time we've been around this $85 level and we've been there since barring the election day and the day after the election we've been hanging around sort of 84 to 87, and the reason we're doing that is because we're being backstopped by geopolitical tension, whether that's from a pipeline in nigeria being taken offline, explosion in yemen, problems in syria, israel, hamas, there's all of these different pockets of geopolitical tension really just basically offsetting the bearishness in the crude market. >> is it making your job more difficult trying to figure out which is going to be the most important factor? >> sure, yes, and the thing is that you have opec saying happy where prices are now, finally opec this balancing item of the crude market is finally happy with prices where they are, saying the market is well
7:33 am
supplied and we have the influences netting themselves off here so i think if there wasn't this geopolitical tension we'd see prices ease. because it is here it's keeping things very murky. >> where would it ease for oil prices if the middle east issues were resolved, what do you think the fair price would be? >> well at the same time downside is limited. we got to the mid to high 70s and bounced like a trampoline from there. the global market needs to find 600,000 barrels a day, this day next year and the year after to keep up with lower demand. the price would be limited to the high 70s area. >> scott looks like once again we're looking at a down market open based on the movement over the last hour or so. what is it going to take? do you have to get a solution to the fiscal cliff? what does the market want to see and telling us for the last
7:34 am
week? >> it's pretty weird, we've got two or three different ideas going around. number one the stock market telling us they don't like what's happening in washington, number two, the volatility ander it' telling us it's not afraid and number three we've got the ten-year telling us we've got something to worry about. so with all of the different points of view, i think right now we just need a plan. our companies that reported third quarter earnings last quarter things were okay, maybe even slightly worse than we thought they'd be, they've had more cash on hand since the mid 1950s. we need to unlock the capital and how we unlock that capital we need a plan going forward from the administration so the fiscal cliff, no matter what we want to talk about, we cannot talk about it. we need a four-year plan, once we get that, we'll unlock capital and when we unlock capital stuff will start moving and that's where i think we'll see inflation. >> your glasses match your tie, scott. you're starting to look like elton john or something here between the coat and the glasses, i don't know, i'm not
7:35 am
sure -- you're a commodities guy, aren't you? stepping out, above and beyond all of this now. >> well, no, we do everything. >> everythihe needs a rise abov. >> you're right, i need one. >> blazer, coat maybe. >> scott, you worry about inflation, you start bringing up all these issues, and what does the market want to see? is there anything that would make the market a little happier at this point? >> well, i think the equities market is a conundrum. there are folks, i'm not sure we make the decisions over tax but serve looking for the bounce to get out of stuff before the end of the year but it's just not happening. i think ultimately the market will need to have some sort of clarity, a plan. i don't think we'll get it in the short term and that's why we've seen this negative stuff hit the market now. we still have the eurozone issues, we've got china, which is also another big issue. we don't have any good news. i'm not a real pessimist but at
7:36 am
the same time i don't see a lot of the economic news that's coming out that's going to make us feel good about our economy going forward. >> it hasn't been great economic news and hasn't been great earnings news and set against the political backdrop of chaos. you said an interesting thing and think a lot of people have been waiting for the bounce to settle into the end of the year, maybe that's part of the problem, any time you see a bounce, people are like great, this is my moment, get out >> as we get closer to the end of the year the ceiling is coming down and down and down. bill gross from pimco said the market come off 5% to 10%, it may not come off all at once but that's erode as folks get closer to the end of the year. >> we've come down 5% since bill gross said it. matt, scott, thank you very much. have a great weekend. >> you, too. >> jonathan wald points out the governor instituted odd/even twinkies rationing. >> i didn't want to say it out loud but i am going to go buy some and hoard them.
7:37 am
>> we have so many twinkies on the set. >> i think cuomo said that. it would be much more funny if it was christie. >> i think christie is against rationing twinkies. >> how would mayor bloomberg handle this in. >> i think you know perfectly well. >> they're already banned in new york. if you get caught with those, same as gun laws. >> i'm going to be taking some across the bridge after the show. much more from our guest hosts coming up. pocket sized news making a splash in the app world, meat the disruptor and ceo of summly. the reason we're playing a little yoko, we'll explain what that means next. at the top of the hour, keeping america competitive, harvard business professor michael porter will be here. [ male announcer ] how do you trade?
7:38 am
with scottrader streaming quotes, any way you want. fully customize it for your trading process -- from thought to trade, on every screen. and all in real time. which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. try our easy-to-use scottrader streaming quotes. it's another reason more investors are saying... [ all ] i'm with scottrade.
7:39 am
7:40 am
7:41 am
we're back with our disruptors. yoko ono serenading us. nick d'aloisid'aloisio, some of investors include ashton kutcher, yoko ono, did you this when you were 15 years old. you're 16 now. >> you're 16-year-old? >> i turned 17 on the birthday. >> before we talk about sumnly you raised money when you were 15 years old to do this from some of the biggest names out there. >> i've been programming since i was 15 but it wasn't until last year that i did an app which basically took news articles and tried to turn them into tweets
7:42 am
and i are he leased it and led it apple featuring it as a new and noteworthy application, a big accolade. some of the investors in hong kong called and e mailed me in august of last year and we did a conference call, i explained i was only 15 and that didn't disencourage them because they liked the product and invested $300,000 last year. >> did you know when he was called? >> i actually didn't. >> i get e-mails like that all the time. i'm a billionaire, i'd like to share money with you. >> my nigerian friends. >> invent a spam filter or else then you're really in trouble. >> ashton kutcher and yoko ono, you have a list that it's kind of crazy. >> a lot of those guys came on this year. the product we launched a week and a half ago i've been working on the last nine months. we've kind of had steven friar, yoko ono, mark pincus, a whole array of people to help advise the. can and get the product to where
7:43 am
it is today. >> tony fratto has this application on his iphone already. >> i picked it up i think it was featured in "wired" and i. ikd it picked it up when i saw it in "wired" it's terrific. >> when we explained this to tony, he said oh my gosh i was just tweeting oen that app. >> we worked out a bug and i updated the app yesterday or two days ago. >> two days ago. >> fixed the bug. >> what does the app do? >> summly built an algorithm that can automatically take news articles and summarize them to fit the screen size. instead of scrolling through the whole content but some have a summary that fit the screen. it's slightly shorter on the iphone 4 than the 5. we can tailor make to the device
7:44 am
screen. >> the summaries are actually good, meaning it does define what is important. it's not just ripping off the first two sentences like some aggregators do. this is a whole other thing. >> automatic summarization has probably been around for 40, 50 years in academia but we're the first to commercialize it. what we did with sri and the top nlp experts in the world -- >> nlp? >> natural language processing, artificial intel jentligence wet a filter. we take a news article and before we summarize it determine whether or not we think we can form a coherent paragraph of text so we can ensure quality and summarize in all kinds of different topics. >> how many languages are you in? >> at the moment it's english. we've hoping to get on french, german and spanish. it extracts key phrases and sentences the author had written.
7:45 am
we're not worried about grammatical errors or language generation. we're taking the author's original words. >> we in the world got you into this as a 15-year-old? >> i was revising for history exams. >> i knew it! >> austan said my students are going to use this to cheat. >> a history exam, go on google or bing and click on a result and go back, it's an inefficient and slow process, if you could create a synopsis of the result it would help you pick exactly what you want to read very fast and that's how i came one that idea. >> the algorithm itself, you coded it yourself originally? >> i did the original one, took about two months. at school i'd study chinese, russian, a few languages. >> just a couple of languages. >> i didn't complete the exams because i did summly but it helped from a linguistical element get comfortable. some of the metrics you look at overlap between a sentence and the title because the title is
7:46 am
already a good summary. there are things that are intuitive so it takes a bit of time. >> are you still going to school? >> i'm currently on a sabbatical. >> me, too. >> i've got two years left so i have to go back pretty soon. >> do you want to go back to school? >> i want to stay with the company as much as possible. there's a lot of potential. currently available on the app stone but windows phone and an dried and everything else and bringing it to other devices like an ipad screen size with a desktop so we want to build this big. >> you say you're going to go back to school, you're actually going to go back to your high school? >> yeah. >> same school, not get tutors? >> same school. there's a lot of different options i could do. i had a scholarship to my school. >> there may be more scholarships coming your way. >> he may be endowing those scholarsh scholarships. >> you do want to go back? >> i think so. i want to keep the education. i think it's important to have the balance between education but as the founder of the
7:47 am
company i've been doing this for 12 months it's great to see the team of people we've got and people getting excited about this. this is the fun part. >> what is the revenue model? >> yeah, so for example we signed a deal with newscorps we have some of their properties on the app. we're a service so we could do a subscription and get your summlys all over the web or e-mail or there's a pay per story, publishers are confined to a description so consumers aren't going to buy something with a dot dot dot. with can he control the length of that preview, it means a consumer would be far more incline to go summary, swipe down. >> share that with the content original nator. >> and we would share revenue split with the content provider. >> you got two years of high school left. >> a year and three quarters. >> are you going to go to college? >> you will? >> yes. >> you'll finish high school and then -- >> yeah.
7:48 am
>> has peter thiel not tried to talk you out of going to school? >> i'll recruit you to chicago's b school. >> we're getting ranked number one today. >> really? >> by who? >> survey by "business week." >> is this the business you say to yourself you want to run for the rest of your career, you want to run for three years, sell it to somebody and start up a new one? how do you now even think about life? at 17 years old. >> i just want to take it as it comes. we've had a phenomenal response, hundreds of thousands of downloads and apple features us as their editors choice in 48 countries which is amazing. we've been humbled by the response and i think now we want to run with it and keep that pace up because it is important now we expand to other languages and platforms quickly and see where we go in the next few years. >> you're amazing not only for the coding for creating and inventing this but you can sit to us and talk to us about that
7:49 am
ideas. none of us were informed when what we wanted to do when we grow up. you're amazing. >> the reason this happened fundamentally is because the idea and the product is useful and i think today's world, there's so much information, it's information overload and summly attacks this from a pragmatic and different angle. >> promise us when you have your ipo you come back on "squawk." >> and you saw "the social network." >> i did. >> who are you going to be like, justin timberlake or have you decided yet? you got a victoria's secret model on the line. you're 17. >> i'm 17. >> you're not even legal. >> oh, god. >> this is mind-boggling. >> it's terrific. you talk about -- anyway, thank you for being here. this has been great. >> he has a big future. >> a big one. >> we want to live vicariously through you. thank you. >> thank you. when we come back austan
7:50 am
goolsbee, and former white house press deputy secretary tony fratto. in the next hour we'll be joined by professor michael porter at 8:15. deputy assistant defense center for cyber policy eric rosenbach, he's on at 8:15, michael porter on at 8:00, at 8:40 our what's working now series with a global perspective from greg dunn. "squawk" will be back in two minutes. "squawk box" is rising above partisan politics. we're asking business leaders -- >> don't take the pin away, joe, please. >> market pros. >> send it over, we're all for rising above. >> and you. >> if you don't rise above, you know what you do? you sink below. >> to join us in calling on washington to solve the crisis that could send our economy into a tailspin. head to and
7:51 am
get your exclusive rise above pin and show washington that you want something done to keep america great. "squawk box" on cnbc. rise above. and profit from it. from local communities to local businesses. the potential of yelp unlocked. nyse euronext. unlocking the world's potential. to a currency market for everyone. the potential of fxcm unlocked. nyse euronext. unlocking the world's potential.
7:52 am
7:53 am
if we get over the cliff we don't have a deal and the market doesn't anticipate that we're actually going to be so stupid
7:54 am
as to go over the cliff then i think you'll see the market really crash and i think you'll see the rating agencies downgrade our credit again. you'll see fitch and moody's join s&p. i think you'll see corporations lose confidence of what we're going to do, where we're going to go. you'll see them slow down hiring, cap will go on strike and we'll be in a hell of a mess. >> that was ear skin bowles on "the closing bell" yesterday. we have austan goolsbee and tony fratto, you heard the terrible case and both of you think the odds are more likely we go over the fiscal cliff, correct? >> look, i mean i was there for t.a.r.p., i remember being in the white house when we were going through the financial crisis and tarp and that was real fall off the cliff crisis,
7:55 am
big corporations about to go bankrupt. january 1st, 2nd, it is a slower burn rate. >> what is your "d" date? >> the middle of the first quarter we'll have a good sense of what the year is going to look like what the fundamental looked at, if we have any optimism of what the future will be on policy. that's where i see it happening. the president has to produce a budget by first week of febru y february. >> he has to deliver a budget, budget hearings and start the budget process, not that we should have any faith in the budget process. >> when is the last time we had one? >> four years ago. >> what do you mean he has to? >> he produces. >> he got zero democratic votes. >> because it was the republican's version of it. i think d-day for the markets is
7:56 am
the day congress adjourns taken becomes clear they didn't sort it out. they go back and forth and i think most of the businesspeople will figure it out, but at the last minute they'll sort it out. if at the last minute they sort it out, i don't think it's priced in, i think there will be a bit of a -- >> there's not that sense of urgency there. they go on vacation next week, gone all of thanksgiving week. >> right. >> you got one week in the countdown and they're not going to be there next week. >> the lame duck sessions historically don't do a whole lot. the last one was anomalous. people should be a little more nervous about this thing than they have. >> simpson and bowles both wore -- >> i no he that bowles was wearing one and it looked to me simpson had one on two, he had two pins here on the side. >> how about an "i love hotdog"
7:57 am
pin? >> i love hotdogs. i want us to rise above. >> i can rise above. >> you did rise above. >> i'm giving you my pin. >> he won't wear it. >> i'm getting a button that says "jump." >> john f. kennedy would go many places and never put on a hat. >> i knew john f. kennedy. you're no john f. kennedy. can it in time for christmas? yeah, sure you can. great. where's your gift? uh... whew. [ male announcer ] break from the holiday stress. ship fedex express by december 22nd for christmas delivery. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 and the streetsmart edge trading platform from charles schwab... tdd#: 1-800-345-2550 gives me tools that help me find opportunities more easily. tdd#: 1-800-345-2550 i can even access it from the cloud and trade on any computer. tdd#: 1-800-345-2550 and with schwab mobile, tdd#: 1-800-345-2550 i can focus on trading anyplace, anytime... tdd#: 1-800-345-2550 until i choose to focus on something else. tdd#: 1-800-345-2550 trade at charles schwab for $8.95 a trade.
7:58 am
tdd#: 1-800-345-2550 open an account and trade up to tdd#: 1-800-345-2550 6 months commission-free online equity trading tdd#: 1-800-345-2550 with a $50,000 deposit. tdd#: 1-800-345-2550 call 1-800-836-8799.
7:59 am
8:00 am
rise above the rhetoric. the consequences of falling off the fiscal cliff. >> we'll be in a hell of a mess. >> guest coasts austan goolsbee and tony fratto will try to find common ground and avoid a deficit disaster. and he's an expert on competitiveness, harvard business school's michael porter it on the fiscal cliff's impact on america's ability to compete in the global marketplace. defending the country against hackers. >> transportation system is crashing and just hit the entire financial sector. >> we'll talk to a department of defense official about the growing cyber threat to america's government and businesses. the third hour of "squawk box" begins right now.
8:01 am
>> welcome back to "squawk box" here on cnbc, first in business worldwide, i'mjoe kernen along with becky quick and andrew ross sorkin. austan goolsbee, he is professor at the university of chicago's booth school of business and tony fratto, former assistant treasury secretary and managing director at hamilton place strategies, more from them in a minute. andrew has, you didn't select these personally these morning headlines did you? >> i did not. >> do you no he what's coming up? >> i do, and one is sear why us this morning, among our top stories reports out of israel saying two hamas rockets have hit southern tel aviv, landed in an open field and apparently did not cause any damage, following a night of air strikes by israel against hamas and the gaza strip and authorities in india are investigating claims that walmart violated foreign exchange rules when it invested $100 million in a domestic unit owned by a wholesale joint
8:02 am
venture partner. at the time direct ownership by foreign firms was prohibited. walmart denied wrongdoing, the news a day after walmart announced internal inquiries into bribery allegations in brazil, china and india, so that's three new ones in addition to the original probe which we talked a lot about on this broadcast, mexico. finally, some sad news for everybody here on the set and i have one in my hand, twinkies maker hostess brands saying a worker strike has triplcrippled operations and now moved to shut down the company. operations have been suspended at all plants and it will lay off its 18,500 workers and focus on selling its assets. the company says it does not have the financial resources to survive a national strike. what do we have on the set. >> twinkie, yodels. >> golden cupcakes. >> what happened to too tasty to fail? >> that book is coming out in
8:03 am
six months. we're working on it as we speak. someone is going to buy this company. >> they're not going to way. >> you think 18,500 workers and whoever buys the assets is buying the factories and workers. >> we thought you were joking, you said i wanted a government bailout, i didn't say i want a government bailout, i don't want them to go away but you made the case this will work itself out in a way where the assets are acquired for what they're worth, they come back, they'll be rationalized. >> the scarcity value of this twinkie. >> as a business professor you're saying this will work without a bailout like the system does work and so we're on opposite sides briefly but, right? switch places. >> it's true. it doesn't need a government bailout. >> what about the dealerships and the supplier networks? >> but it tastes so good. how can you is ai that? is there anything the twinkie cannot do? >> the worth will be realized by somebody. there will probably be an
8:04 am
auction. >> they are selling the assets. >> and the plants that need to be rationalized or whatever will be and maybe they'll be modernized. there will be pain. >> true cap stitalistic system. >> who is thinking of the children? >> how about foreign investment? do we want some of the dollars back? >> how would we feel in washington about that? >> would it be a natural security concern in. >> tell him to take his rise above button off. that is not rise above. >> yoplait and the french. >> oui! >> no way, they love mcdonald's. >> we want some sort of a solution to the fiscal cliff, we'd like to see something like that. yesterday on cnbc, alan simpson and erskine bowles weighed in on expectations for the fiscal cliff and the potential for getting a deal done on debt. they joined maria yesterday on "the closing bell" and here's
8:05 am
what erskine bowles had to say about america's global competitiveness. >> if we get our house in order the future of america is really bright and question compete with the best and brightest. if we don't, we're well on our way to becoming a second rate power. >> joining to us talk competitiveness and the ifisical cliff is mirkle porter, harvard business school professor and michael great to see you. >> great to see you becky and austan great to see you as well. you are one of our great leaders in trying to move us in the right direction here. >> to rise above. >> professor, we've been trying to figure out what this is all going to mean, the fiscal cliff that talks about whether or not there is some sort of a grand march began. is there a silver lining for businesses down the road and america's competitiveness down the road? >> i think the fiscal cliff is really important and i do hope and i feel positive that there is a grand bargain but let's be clear.
8:06 am
the fiscal cliff is step number one. that's in a sense the symptom. we have a deeper problem in america of declining competitiveness, our standard of living is not improving, our ability to support rising wages is not improving so we've got to do more than just deal with the budget problem if we're going to solve the problem and if we don't deal with some of the underlying issues we will avery to do the budget thing over and over again. >> some of the problems are things i think we've heard echoed by some of the ceos who were meeting with the. the earlier this week. ursula burns says she's kr concerned about trying to find tax structure for new corporate taxes, may even the playing field a little bit more even if it becomes more simplified and also talked about immigration. what other topics are things that come to the top of mind when you start thinking about competitiveness? >> well harvard business school has done a major body of work on this in two major surveys of the business community and we would identify a number of areas. corporate tax reform is
8:07 am
fundamental. it's one of the number one issues, we've got to get the rates down, we've got to broaden the base and we've got to deal with this international taxation system that's punishing u.s. companies. number two we've got to make a move on high scaled immigration. we have a lot of issues but have to focus on the thing everybody agrees on which is allowing high school people to come, letting people that graduate from our own universities stay here. infrastructure issue is zapping our costs, we have too much regulation. number one thing our hbs survey respondents tell us regulating complexity, those are some of the key areas and we find democrats and republicans agree on the basic directions of most of these things. it's not that there's a big debate on the substance. we just somehow have not been able to get ourselves together to take action and this is what
8:08 am
we need to use this moment to do. there's a whole new discussion going on in the business community. i'm here at the council on competitiveness meeting. there's incredible conis enous what we need to do, left leaning, right leaning, labor, management, we have to get on with it. >> the "wall street journal" is reporting according to sources inside the white house they are having discussions about replacing the spending cuts that are set to begin in january with a new, what they're calling smaller separate package of what they're calling roughly $100 billion next year and then for eight additional years. they're saying this would hit a number of federal programs, military, embassy security and state aid so this is not going after some of the more third rail issues if you will when it comes to entitlements and so many other things but this is moving futures a little bit. i don't know if we can take a look at the futures board on this news this morning.
8:09 am
>> the 100 billion was the sequester, they're talking about doing something different. these are targeted taken wouldn't be $100 billion. >> they were saying it would be $100 billion. >> unless the white house and congress intervene the ones that are in place would cut spending by $100 billion next year. this is to not do that. this is to do it in a more targeted way. >> what does targeted mean? >> in terms of the size. >> i don't remember reading what the sequester was. this is a different deal. this is a way of dealing with the sequester with a package of targeted cuts as well as tax increases. the republicans have put something like this forward where they'd only terminate the defense programs only and they would not have accepted a deal with tax increases so this is a white house deal but at this point i don't know. >> we've got austan and tony on set with us, too, what do you
8:10 am
read between the lines? >> a negotiated solution to get at more rational cuts makes sense and they should come to something that is more predictable and rational for the governmen government. >> what are the sticking points between the two sides. the statements that boehner made the world view, that was kind of an opening to a compromise negotiation. this sounds like another opening of nobody's super fixed in a position, maybe we can work around that. people have been saying if we were going to make a deal to avoid the fiscal cliff or to put us in a situation to negotiate a grand bargain they'd have to figure out some way to make a downpayment and sounds like maybe we're -- >> maybe the markets should look at this as okay olive branches from both sides, maybe this is some move towards -- >> it's a positive sign that
8:11 am
grownups are trying to, you know, solve the pieces of this. >> we're talking about dealing with the sequester. the real thing we think about, the tax. >> we always talk about the tax part. >> this is the xeser part and we don't have the details. it would be smaller than the cuts that are proposed. >> mikele that gets back to your point which is the fiscal cliff is not the really important point, it's the fiscal abyss that lays beyond that. if this pushes that into 2013 and we get toward the 2014 midterm elections again then what? >> how we make this sausage is going to be complicated and the details are beyond me for one thing but i think we know that we have to tackle the entitlement programs so if you don't tackle those, it doesn't really matter in terms of the longer term trajectory of the budget but we know we've got to get some of the basic underlying
8:12 am
business environment circumstances improved or we'll see continued disappointing economic growth and pressure on the budget. we have to go back and redo it and redo it. this is the perspective i think that we need to make these negotiations, i think the business community is really rallying around a rational set of policies, business communities is not imposing higher taxes for personal taxes, the business community is i think finally seeing the larger issue here and we're doing everything we can to bring the business community together. i hope the signals we're getting in washington are going to be supportive of actually getting something done now. >> getting something done and avoiding the fiscal cliff are not necessarily the same. >> no. i think avoiding the fiscal cliff is a critical and
8:13 am
fundamental near term step but getting something done would be more of a strategic package of actions that are meant to really restart and jumpstart american competitiveness. all of our data show that the underlying conditions, the underlying costs of doing business in the u.s. are still out of line and we don't look quite as bad as we did a year ago because europe looks worse and japan is really stagnant, but if you look at what's going on outside of those slow growth areas we see a tremendous amount of vitality, a lot of improvement in regulatory costs and so forth and we simply have to realize that the american economy we've known since world war ii, which has been in a preemnint position is really under threat and we must take action. >> professor thank you for your time today. >> thanks, becky. >> this looks like something people aren't going to want to get on in.
8:14 am
the republicans wanted to put off the defense spending cuts with no revenue increases. now talking about putting off all the cuts for 6 to 12 months and raising revenue. no one is going to rise above. >> just fix the problem down the road, takes away the threats and you're in a position where you're starting the election cycle again 12 months from now. >> here we go. either rise above or you sink below and so i don't see how you can argue. you either become an eagle or a snake. an eagle or a snake. >> for a foundation it's not sinking or rising. >> you don't want to rise above? >> when we come back, the war against cyber espionage, we have more oen that when we return. th. he loves risk. but whether he's climbing everest, scuba diving the great barrier reef with sharks, or jumping into the market, he goes with people he trusts, which is why he trades with a company that doesn't nickel and dime him with hidden fees.
8:15 am
so he can worry about other things, like what the market is doing and being ready, no matter what happens, which isn't rocket science. it's just common sense, from td ameritrade. which isn't rocket science. if we want to improve our schools... ... what should we invest in? maybe new buildings? what about updated equipment? they can help, but recent research shows... ... nothing transforms schools like investing
8:16 am
in advanced teacher education. let's build a strong foundation. let's invest in our teachers so they can inspire our students. let's solve this.
8:17 am
welcome back to "squawk box." the futures are indicated a little higher. the dow futures up by 31 points. we were indicated lower before we got the latest flash from the "wall street journal" how the white house is putting together something that could be seen as more of a compromise. >> good or bad news? >> we've been debating. from the knee-jerk reaction it may be this is the two sides starting to come closer to avoid the fiscal cliff. the bigger question is what
8:18 am
happens with the fiscal abyss, with any idea of a grand bargain. that's what we've been talking with austan goolsbee and tony fratto. we're going to talk about that in a minute. cyber crime is a growing threat to business and government agencies, secretary of defense leon pa net ta made headlines when he called cyber espionage a serious threat to the country. eric rosenbach is the deputy sec. stare assistant to defense. >> good morning, andrew. >> i don't want to overstate or understate it. if you are a business in america today, a ceo of a company, how much of your time should you be spending thinking about the threat to your cyber security? >> this say really important issue for businesses not just for government and the reason ceos and general counsel should spend time think being this, a range of cyber threats could impact a business starting with type of embarrassment, someone
8:19 am
steals e-mails and posts them on the internet, theft of personal information or secret type information, the theft of intellectual property is a huge problem for our competitiveness and more damaging attacks like we saw a couple weeks ago. >> eric, who is doing this? is it other countries, is it competitors? you've seen the back end of how this happens. >> you know, it's a really complicated landscape so there are nation states that do this in terms of economic espionage and prepping for attacks. there are a group named anonymous like the al qaeda of the internet and there are individual hackers who do it for fun and intel eekt lulectual ch. >> we've seen a number of banks have some serious cyber security issues. however it always appears they never lose money or you hear
8:20 am
that names or credit cards. you tell me it doesn't feel like there has been some major, major breach that's had a huge impact on people except for all the money that's gone into the technology to try to keep everything secure. >> i'm afraid that is not what the try ut is and the financial sector does invest a lot of resources in cyber security. the reason they do that it has a significant impact on the bottom line. all business models in the financial services sector particularly for credit card companies, banking because they rely on online transactions they have to build into their business model a certain percentage of loss. right now online cyber crime is the biggest market exceeds the drug trade. >> and a ceo was asking me this question, if your company is
8:21 am
hacked and you are the ceo of the company, what is the right thing to do, to go directly to the fbi and the authorities or there are some ceos that don't want to do that because they don't want their customers to know they've been hacked. >> it's a hard decision. i don't think the right answer is that you have to go to the fbi in every single case. but what ceos should recognize is there are some people in the government who can help out. the fbi has a lot of capacity and they could help mitigate the overall risk to some of these cyber intrusions. department of homeland security with the department of defense can be helpful. usually in one of the attacks the first attack you discover is not really what you should be worried about. meanwhile all of your intellectual property flows out the door for two years or secret information about transactions you may be working on is going to another country or another firm. if you see one incident it's
8:22 am
worth it as a leader to take it sear yuzly and probably go to the fbi. >> should you assume everything in your e-mail is being read by somebody else? >> you should not assume everything is being read by the government. we of course take the fourth amendment seriously and from an operational perspective there's no reason why the fbi, the national security agency wants to read everyone's e-mail. it's targeted and of course governed by the law and the courts, but as we've seen through a lot of different events recently, if you assume that your e-mail is secure from corporate thieves, nation states, rogue individuals, you're making a pretty big mistake. >> what about g mail? many people have an account at the office, and then they have a g mail or hotmail account or yahoo! account and ceos, board members all have these accounts. what should they assume about those? >> goingle ogle is trying to mae
8:23 am
g mail is secure but the internet is not secure so if there's something that you think is important to you that is valuable and is precious and important to your firm, then you should not be using your g mail account. it doesn't have the level of security you need that you should have when you're in a firm and taking all the risk mitigation measures you want to invest in. >> eric thank you for this. we'll leave it there but it is an important issue that people need to spend more time focused on. >> thanks a lot, andrew. >> we've been talking about this morning, twinkies maker hostess brand says a worker strike crippled its operations and moving to shut down the operations entirely. greg raburn is the company's ceo. when we spoke with you a couple months ago you had been optimistic at the idea that you could reach an agreement. you were asking for wage, benefit and work concessions and offering the 12 unions involved a 25% stake in the company,
8:24 am
seats on the board and offering $100 million in debt on this. what happened? >> you know, i was optimistic and i remained optimistic throughout and i think the fact we were able to get an agreement with our teamsters union, a large union was encouraging. we got agreements with several of our other unions but the bakers union which is about 30% of our workforce decided to go on strike last friday despite the fact we've been straightforward that a strike would cripple the company and cause a liquidation. i don't know if they thought that was a bluff or there was some other better outcome but that's essentially why why where we are today and the company will be liquidated. >> you'll be laying off most of the 18,500 workers. you had a conference call with employees earlier this morning. what was the reaction? >> people are devastated and you
8:25 am
know, you're exactly right, essentially people are going to be sent home today and so i'll restate it, about 30% of our workforce has put 18,500 people out of a job, and that's a lot of families. we had people working very hard this week to try to overcome the strike, management running in the plants, we actually had bakers crossing their own picket lines because they wanted to keep their job but you know, again, there's no -- when a company is in bankruptcy, it has really no margin for error to begin with, and a strike like this impacted sales and impacted our ability to service customers and customers don't sit around for out of stock positions on their shelves. >> how is it 30%, which union is it? >> bakers union. >> the bakers union, the bct. >> they represent 30% of the total employees? >> that's correct, joe. >> greg if they called you and said we'll go back to work?
8:26 am
>> too late. >> done. >> we're done. the financial impact of a strike, and we've been monitoring and going 24 hours a day every day this week, a lot of people are working hard to overcome it. the reality is that we had a number of plants that couldn't produce, couldn't produce the skews our customers are expecting to get and at a certain point customers are going to make sure they have product on the shelves and they go else where. >> the bakers union, were they representatives of the bakers union you had on the call with employees this morning? >> no, they haven't returned our calls for about a month and i think the odd thing here is there were no demands from that union. they just struck. i think unfortunately the leadership of that union led their members to believe that there is a buyer in the wings, even though there is no buyer. some believe that we would be coming back for a deal, a different offer for the bakers different than the offer we gave to teamsters and managers and
8:27 am
everyone else who was going to take the wage concessions and neither of those is true. that's unfortunate but we are where we are. >> if you have the situation where you are liquidating the brand and the company you'll be selling these brands so maybe there is a buyer in the wings but they'll be doing that and going ahead and not be beholden to any union laws anyway, right? >> i think that's correct. you have to understand that this is overcapacitied. we have more capacity than we need. i'm hopeful that we can sell the brands but i don't think that equates to better offers or better contracts for the union workers that were on strike. >> greg, who is in the wings? >> oh, gosh, you know, we have 30 brands. lot of people are not aware of how many brands we have, dolly madison, drake's cakes. >> i didn't realize you had home pride and some of the bread that
8:28 am
i buy. >> there are a number of brands, i think that obviously competitors will be looking at those and then they have to make a judgment as to whether they want to take the shelf space that's open with their own products or whether they want to move into a brand and formulate that brand. >> what is the chance of the 18,500 workers that some of them keep their jobs and what percentage might you handicap that might? >> wow, it's very sad because as you guys well know, there's 23 million people unemployed in this country today. there's a multiple of that that are underemployed. i would hope every worker would find a job. i don't want anybody to be out of work. people have said hey, you're threatening with a liquidation and i've said this say consequen consequence, not a threat, this is a consequence of the strike. this is the economy is where it
8:29 am
is, it say tough time for the families and those employees to be out of work. >> greg, were there representatives of the teamsters unions and some of the other unions on that call this morning? >> not on the call but i've been speaking with the leadership of the teamsters union almost every day this week. they've been incredibly support. the teamsters would normally honor any picket line at any company that's their history. we were trying to bank as much as we could and keep everything going. i can't say enough about, i think the teamsters let their employees decide and it was not a landslide it was a close vote. they let their employees decide whether they want to accept or not. the bakers union held town hall meetings they had a stand up and tell me if you're going to vote this down and the leadership of the union actively campaigned to
8:30 am
get a no vote and that's exactly what they got and the judge in our case approved imposing this on the bakers because he understood that this was our only shot at reorganization, our lenders would support it if we could get these concessions across the board, the bakers chose to strike. >> how steep were the concessions? >> sorry? >> how steep were the concessions? i'm assuming this was the same deal offered to all the other employees? >> absolutely. 8% wage cut in year one which comes back up starting year two and equates to a 4% wage cut over the five-year contract, about 17% increase in health and welfare which moves the union workers closer to what our non-union workers pay for health and welfare. and by the way the 8% cut was for everyone, management, nonunion and union, not just the unions. and reduce pension contributions and a holiday for pension contributions but again, the majority of people in the company were supportive, but the
8:31 am
bakers union was not. >> greg, you are owned by private equity ripplewood, and when you think about the leverage that was put on the company, was that a mistake? did you crack some of this up to the structure of this company and how it's not been operated necessarily but financed? >> it's a good question. i do turnarounds for a living so i see a lot of these situations. i came into this situation in february and i have said in town hall meetings in plants there is plenty of blame to go around. i think management was poor. i think a lot of decisions were poor. i think the leverage prohibited the company from making capital investments that it should have been making and i think that was a mistake. but then you add on legacy pension and liabilities from the unions, you add on work rules that say one person has to drive
8:32 am
the cake, one person has to drive the bread and you can't do it all in one truck. there's blame for everybody. >> there will be people who draw a straight line to private equity and the issue of debt. is that right or wrong? >> i don't think i would draw that line because frankly ripplewood in this case i think gave the company every chance it could. i'm not trying to point them out and separate them. last summer it was clear they weren't going to get that money back. i think they put $30 million in while these negotiations were going on and probably zero expectation they would get it back and the result is frankly they lost every penny they invested in the business. >> long-term are swinkie ii ii twinkies going away? >> i'm hopeful we can sell the brands and the brands will live on. they're iconic.
8:33 am
we sell $2.5 billion worth of these products every year but that's very little consolation to the 18,500 families. >> there could be, you just mentioned a couple of things. if we were to look at in a lot of the details of who can drive what, one person drives bread. it would be, we would read it and we're not aware of just how crazy some of this stuff is, greg, would you say that's fair to say? >> you would look at it and say it's insane. >> pension, what's put in versus the normal employees and things like that. this is a case study of we got private equity on one side and union power on the other side, both sides we could probably have plenty of game to go around? >> i think you're exactly right, joe. >> i'd like to see some of the, because i've seen some of the rules for just putting on a broadway show and one guy's got to plug it in, another guy has to undo the wire, another guy -- someone has to put your mike on. >> yes, it's true, but the
8:34 am
proposal that we had eliminated all of those crazy work rules also as part of the concessions. we're not going to survive to see that. >> greg thank you for your time today. >> thank you. coming up more from austan goolsbee and tony fratto and portfolio discussion with a five-star fund manager, greg dunn of thornburg investment management will join us at the bottom of the hour. i'm only in my 60's... i've got a nice long life ahead. big plans.
8:35 am
so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement plans, it could save you thousands in out-of-pocket costs. call now to request your free decision guide. i've been with my doctor for 12 years. now i know i'll be able to stick with him. you'll be able to visit any doctor or hospital that accepts medicare patients. plus, there are no networks, and you never need a referral. see why millions of people have already enrolled in the only medicare supplement insurance plans endorsed by aarp. don't wait. call now.
8:36 am
8:37 am
welcome back to "squawk box" everyone. google's popular mapping application may soon return to apple devices. "the journal" is reporting google has distributed a test version that will work with apple's new ios operating system. the update took google maps off of iphones and ipads and replaced it with this widely criticized apple version, you've heard all the hooplaabout this. google wants users to use google maps on any device they prefer. when we come back the economic impact of the fiscal cliff, how far will the economy fall if lawmakers can't reach an agreement and what happens if they do reach an agreement? steve liesman will bring us a special report after this. tdd#: 1-800-345-2550 when i'm trading, i'm totally focused. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 and the streetsmart edge trading platform from charles schwab...
8:38 am
tdd#: 1-800-345-2550 gives me tools that help me find opportunities more easily. tdd#: 1-800-345-2550 i can even access it from the cloud and trade on any computer. tdd#: 1-800-345-2550 and with schwab mobile, tdd#: 1-800-345-2550 i can focus on trading anyplace, anytime... tdd#: 1-800-345-2550 until i choose to focus on something else. tdd#: 1-800-345-2550 trade at charles schwab for $8.95 a trade. tdd#: 1-800-345-2550 open an account and trade up to tdd#: 1-800-345-2550 6 months commission-free online equity trading tdd#: 1-800-345-2550 with a $50,000 deposit. tdd#: 1-800-345-2550 call 1-800-836-8799. sfx- "sounds of african drum and flute" look who's back. again?
8:39 am
it's embarrassing it's embarrassing! we can see you carl. we can totally see you. come on you're better than this...all that prowling around. yeah, you're the king of the jungle. have you thought about going vegan carl? hahaha!! you know folks who save hundreds of dollars by switching to geico sure are happy. how happy are they jimmy? happier than antelope with night-vision goggles. nice! get happy. get geico. fifteen minutes could save you fifteen percent or more.
8:40 am
welcome back. we know growth would take a hit if we fall off the fiscal cliff. how bad could it get? steve liesman joins us with more or in this case with less. >> much less. if we do a full swan dive off the fiscal cliff the effects will be substantial, economists
8:41 am
estimates but all agree almost certainly mean recession next year and the depth and length of that downturn will depend on how quickly lawmakers can agree on a fix. the numbers from the cbo, one is in dollar amounts on your right and then there's the gdp on your left. what's the difference? it's multipliers. apparently we have no time for a discussion about multipliers but that is the debate going on, how much is the dollar worth in defense and how many jobs does it create. on the right it's, which is the dollar one on the right, is the right, i can't see the thing, but i guess i need glasses, it's dollars, end up to a $500 billion hit in 2013 and for gdp a 2.9% hit just from the decline in spending on the increase in taxes. it doesn't include the uncertainty of business and all that other stuff that may already by the way according to guys at bank of america affect employment next year or the
8:42 am
coming months. let's look at the next graphic. this shows how the cliff phases in. now, what you have here, if you look in your upper left there, this is nomura saying if we go over the cliff for a temporary point of time, that's the orange and the darker blue in the upper left, a one percentage point hit to gdp and phases out through 2013. if we go over the cliff and say there, those are the green and blue lines. this is lou alexander at nomura uses a slightly higher number for the total effect. you get to a four percentage point hit the way he looks at it and it takes place over a long period of time. how about jobs? 3.4 million jobs is the total that we would get to and there are the effects or the bush tax lower income, upper income, defense spending, nondefense spending. those are the effects on jobs if you take the amount of grrks dp out. >> can we go back to the last full screen? >> i don't know if we have that
8:43 am
technology. >> i only ask because there's the issue about taxes seem to be tax cuts seems to be the bigger issue. so maybe the debate is an issue. >> what's really weird is if you go back to the prior one, the tax cuts for the wealthy is the smallest impact in the smallest effect even though that's the one that has the biggest discussion here. that gives added initiative for both sides. i want to read one quote, from the carlooil group. while the fiscal cliff would be a near term disaster an extension of 2012 fiscal policy that fails to address increasing indebtedly could actually represent the worst long run outcome. >> austerity now? >> just remember, if you just do a watch, which is the news that came out this morning. >> it's the worst. the market was up on that news, too. >> you talk about business uncertainty. more and more of the tax system has become a year-to-year thing
8:44 am
in kong. i don't know what my taxes are next year because congress has to extend it. all you would be doing is compounding uncertainty. fix it now. we are at the apogee in the political process, the furthest from an election we'll ever be. >> the taxes versus the spending, the chart didn't include the entitlement stuff we want to get in a grand bargain. that's just a sequester. >> we need to do more. you want more specifics? >> more charts. >> i can come back with more charts. we have portfolio picks from a top fund managing, greg dunn, thonger of thornburg's international growth fund. i always wait until the last minute.
8:45 am
can i still ship a gift in time for christmas? yeah, sure you can. great. where's your gift? uh... whew. [ male announcer ] break from the holiday stress. ship fedex express by december 22nd for christmas delivery.
8:46 am
8:47 am
welcome back, everybody. the stock market might be on a losing streak but our next guest knows what's working now, greg dunn of thornburg international growth fund, thanks for joining us today. we are looking for ideas. you're the perfect person to talk to because you are the bottoms up approach. you're not worried about the macro, it's good given everything that's happening in the macro. when you look around the globe, tell us about a few of the opportunities you see right now. >> sure, there are several stocks where we think are pretty interesting right now. one of them is telecity, a data center company located in the uk. what we think is really
8:48 am
interesting about telecity is the fact that their growth is being driven by the exponential growth of internet traffic and they also have key geographic locations in city center locations like london and paris and frankfurt, and what's really important about being in those locations is it gives them an advantage over their competitors in that they're able to provide lower latency, able to provide a shorter distance from point a to point b for their customers. >> so that's something you like, and you've also been looking around at a pharmaceutical company in canada. what do you see there? >> yes, valiant pharmaceutical we think is a pretty interesting not your typical pharmaceutical company. when you think about a big pharma company you think about them spending a lot of money on r&d for drug development. that's not what valeant does. they're spending 3% instead of 20% on revenue. they're going out and they're
8:49 am
finding interesting niche drugs and drug companies and acquiring them and they're cutting the expens expenses, plugging the drugs into their distribution and able to add a lot of shareholder value by doing that. >> so what first brought to you valeant? what made you find that company? >> we found it on a screen with our bottom up process we do a lot of screening looking for a lot of different parameters and i think it was the top line growth that probably brought it to our attention initially. >> what about wire card? >> wire card is another interesting company, a an online payment processor, it's a german company and so they're driven by the growth of e-commerce, something that global is growing, you know, close to 15% a year and they're directly leveraged to that. basically they provide an online retailer with the ability to process payments and by doing that they capture a small
8:50 am
portion of every payment that they process, so they're basically process. they are basically like a merchant acquirer if you think about global payments in the united states as a peer except for they're only online. >> greg, thank you very much. it's a good reminder there are stories working regardless of what's happening on the macro level. thank you for your time today. >> thanks for having me. >> austin won't wear the rise above pin but he's using my viagra pen. >> he keeps this pen on the desk. >> i'm all about rising above. right there. coming up, carl quintanilla hitting the road headed to washington to cover the -- i got this. i got this. to cover the president's meeting with lawmakers. he'll join us next.
8:51 am
8:52 am
8:53 am
carl quintanilla is in washington today. looking so anchor like. >> you know, i was going to talk about the fiscal cliff but i'm
8:54 am
too busy reading "the cincinnati inquirer." >> we're hoping this goes viral. >> it's already viral, my man. this idea that you told them you're a young man, i mean, don't they have fact checkers at that news group. >> they asked me have you ever seen it so polarized? i said it's not like i can go back to mckinley. i said i could go back to carter. cincinnati -- as goes cincinnati, so goes ohio as goes ohio goes the election. it all comes back to cincinnati that's why we decided to do it there today. >> one man from ohio is going to be here today at the white house. john boehner. >> from cincinnati. >> all week long, guys, we have seen the labor leaders come and then the ceos come and today there will be civic organizations. when that meeting happens during "squawk on the street," that's where the rubber is going to really hit the road. we'll talk about this story in
8:55 am
"the journal" today. cramer is already on alert. a lot of chatter about the market being so oversold any sign of kumbaya as peter said this morning could result in some higher stock action. we'll be on the lookout for that. >> we have tony and austan goolsbee and the point we're trying to make is if we just reach an agreement and everyone get a little bit of what they want and not kick the can down the road and if there isn't anything that addresses the fiscal abyss, is that the worst case scenario? >> absolutely. we'll have ken conrad on later. if you're in favor of doing anything like that, aren't you part of the problem and not the solution? it's so easy to push this decision into tomorrow. that's not what a lot of people are looking for. >> he's a rise above guy. this is rise above that issue. rise above the idea of going
8:56 am
ahead and making the easy decision here. >> we've talked about extension with the down payment to get to the grand bargain. thank you. we'll see you in a few minutes. >> you could always just pass out viagra pens. that's the other alternative. >> rise above, my friends. i'm all about rising above. >> a different version of rising above. when we come back, we'll have the last word. ♪ nespresso. where there's a coffee to match my every mood. ♪ where just one touch creates the perfect cup. where every cappuccino and latte is made with fresh milk. ♪ and where clothing is optional. nespresso. what else? now's a good time to think about your options.
8:57 am
are you looking for a plan that really meets your needs? and your budget? as you probably know, medicare only covers about 80% of your part b medical expenses. the rest is up to you. so consider an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement plans, they pick up some of what medicare doesn't pay. and could save you in out-of-pocket medical costs every year. call today to request a free decision guide. with this type of plan, you'll be able to visit any doctor or hospital that accepts medicare patients... plus, there are no networks, and you'll never need a referral to see a specialist. if you're thinking about your options, call today. when you call, request your free decision guide. and find the aarp medicare supplement plan that may be right for you.
8:58 am
8:59 am
>> we don't have a lot of time. i see what you're saying now. your version of rising above is that we go over the cliff to focus everyone on how important the abyss is so that we do something serious about the abyss. >> i'm not advocating going over the cliff. >> i kind of have for the whole show. >> i want us to get a frame work that we get a grand bargain, address the long run fiscal problem in a way let's try not to -- >> he's trying to force the issue. >> you think so too. >> that's the way we'll get to solutions. i want to see us get to some other really big crisis that we have to deal with like the fact that 40% of ninth graders aren't

Squawk Box
CNBC November 16, 2012 6:00am-9:00am EST

News/Business. Becky Quick, Joe Kernen, Andrew Ross Sorkin. Business news and talk as the trading day unfolds on Wall Street. New. (CC)

TOPIC FREQUENCY Us 35, America 13, Washington 11, Tony Fratto 9, U.s. 9, S&p 9, Becky 8, Israel 6, Austan Goolsbee 5, Charles Schwab 5, Panama 5, Cincinnati 5, Fbi 5, Alan Simpson 4, Michael Porter 4, Greg Dunn 4, Bakers Union 4, Aflac 4, United States 4, Joe 4
Network CNBC
Duration 03:00:00
Scanned in San Francisco, CA, USA
Source Comcast Cable
Tuner Virtual Ch. 58 (CNBC)
Video Codec mpeg2video
Audio Cocec ac3
Pixel width 528
Pixel height 480
Sponsor Internet Archive
Audio/Visual sound, color

disc Borrow a DVD of this show
info Stream Only
Uploaded by
TV Archive
on 11/16/2012